Govt 'cautiously optimistic' as GDP contraction not so sharp in Q2: CEA

Topics Centre | GDP data | India GDP

While presenting his outlook for the Indian economy, the CEA said economic recovery offers optimism, but caution is required as regards both the economy and the pandemic. PTI
It is difficult to say whether gross domestic product (GDP) growth would enter positive territory in the upcoming quarters, given coronavirus-related uncertainty, said Chief Economic Advisor (CEA) K V Subramanian on Friday.


He said that government was “cautiously optimistic” as most indicators across sectors have shown improvement in the second quarter (Q2) of fiscal year 2020-21 (FY21) compared to Q1.


“The uncertainty in economic outlook is due to the Covid-19 pandemic. The GDP estimates are more encouraging than what was anticipated by most commentators. (However) I would urge caution, especially given the winter months,” he said in a presentation after the government released Q2 GDP numbers.


Presenting his outlook for the economy, the CEA said the economic recovery “gives us optimism, but caution is required on both the economy and the pandemic”.


“The economic impact is primarily due to the pandemic, good news is falling daily cases are due to lower transmission and not due to lower testing. To sustain economic recovery, caution must continue. Sustainability of the recovery critically depends on keeping the pandemic in control,” according to the presentation.


Citing the Spanish flu whose second wave was more devastating than the first, the CEA said the country has crossed the peak of the first wave of Covid-19 in September, winter months must warrant caution.


Till the pandemic goes away, some sectors that were affected by social distancing will continue to experience demand slump, it noted.


On the recovery path, he said: “V-shaped recovery in use-based industries — especially in consumer goods — and investments — mainly in capital and infrastructure goods — suggests strong revival of both consumption and investment, which together account for about 90 per cent of India’s GDP,” he said.


The economy had picked up momentum in February this year, before the onset of the pandemic. Since then, the PMI index has risen to the highest in a decade. PMI Services, too, is at the February level.


Suggesting an expansionary phase in both manufacturing and services, the index of core industries and the index of industrial production show factory output has been an engine of growth, helping the recovery process.


Taking about specific sectors, it said steel production and consumption gathered momentum, signalling revival of construction activity.


Power consumption and e-way bills clocked double-digit growth in October, suggesting buoyancy in industrial and commercial activities.


However, mining has not yet recovered, while manufacturing and electricity sectors have, noted the CEA.


Further, economic recovery is reflected in the corporate sector too, which was back on track in Q2 after two quarters of contraction. Corporate India saw operating profits similar to that in September 2018, he pointed out.


There has been a phenomenal growth in digital payments in India during the Covid-induced lockdown, helping formalisation of the economy, he said.

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